The global financial elite don’t want to be fooled again.
Scarred by the worst banking crisis since the Great Depression and the hubris that preceded it, bankers, investors and policy makers who gathered in Davos, Switzerland, last week gave a guarded welcome to signs of recovery in the world economy and the endurance of the euro region.
"Optimism, but with a sober tone," was how Bank of America Corp. Chief Executive Officer Brian T. Moynihan characterized the mood pervading the World Economic Forum’s annual meeting, even as investors were lifting the Standard & Poor’s 500 Index above 1,500 for the first time since 2007.
The mood in Davos was "totally different" when stocks last reached that peak, said Harvard University economics professor Kenneth Rogoff, 59. This year, executives from Deutsche Bank AG (DBK) and Goldman Sachs Group Inc. (GS) were quick to couple upbeat assessments with warnings that economies remain fragile and prone to policy error. Some bankers fretted that credit bubbles may be forming as central banks pump out cash.
Such humility was rare in Davos on the eve of the credit crisis that engulfed markets in 2008. The year before, John Thain, then CEO of NYSE Group Inc., said "the financial markets, the world economies are all actually in quite good shape." Josef Ackermann, Deutsche Bank’s CEO at the time, said investment banks "have a very good future."
Burnt by the subsequent collapse of Lehman Brothers Holdings Inc., more than $1 trillion U.S. in bank losses, the stigma of taxpayer-funded bailouts and a worldwide recession, leaders of the largest banks displayed little bravado in the Swiss resort this year, even as markets cheered improving economic growth in the U.S. and China and reflected an ebbing risk that a euro-member country might abandon the currency.
During the week of the Davos conference, U.S. stocks capped the longest stretch of daily gains since 2004, as companies delivered better-than-estimated corporate earnings, claims for jobless benefits fell to a five-year low and the index of American leading indicators rose the most in three months.
In China, economic growth accelerated for the first time in two years, the National Bureau of Statistics said in Beijing on Jan. 18. Government efforts to stoke demand drove a rebound in industrial output, retail sales and the housing market.
And in Europe, investors have become less anxious about the euro region’s most-troubled members. The extra yield investors demand to hold Spanish 10-year bonds over German bunds has narrowed to 354 basis points, or 3.54 percentage points, from a euro-era record of 638 basis points in July. Greece’s benchmark ASE stock index has surged 73% in the same period.
